Norway's oil and gas divestment spares biggest producers

By Mikael Holter on 3/8/2019

OSLO (Bloomberg) -- Big Oil dodged a bullet.

Norway took a partial step in divesting oil and gas stocks in its massive $1-trillion wealth fund, approving the sale of smaller exploration companies while sparing the biggest producers such as Royal Dutch Shell Plc and Exxon Mobil Corp.

After more than a year of deliberation, the government on Friday approved excluding 134 companies classified as exploration and production companies by FTSE Russell, including Anadarko Petroleum Corp., Chesapeake Energy Corp., Cnooc Ltd. and Tullow Oil Plc. The proposal would see the fund sell about $7.5 billion in stocks.

“It reflects to a larger extent the risk we ourselves have -- the bulk of the state’s exposure in Norway is upstream activity,” Finance Minister Siv Jensen said. “We’re reducing our vulnerability by choosing to withdraw the fund gradually from this segment.”

The government goes part of the way in meeting a 2017 proposal from the fund, which rattled global markets by arguing for a full divestment of the sector to limit Norway’s overall exposure to oil. The plan was hailed as a potential huge step by climate activists, some of whom on Friday lamented the limited scope of the decision. It has been a hot-button issue in Norway, which is seeking to project an image as a responsible environmental steward while pumping oil and gas at a fast clip.

Sony Kapoor, managing director at think tank Re-Define, said in a message that the limited divestment “‘represents a victory of Big Oil lobbying over financial prudence and common sense.”

Jensen defended her decision to keep the big oil companies in the portfolio, citing their increased investments in renewable energy. Norway’s own oil company, Equinor ASA, is also increasing renewable energy investments, and even recently changed its name from Statoil.

“It would be sad if the pension fund would not be able to invest in those companies in the future,” Jensen said in an interview.

The partial move underscores the changing political climate in Norway, where opposition to oil and gas exploration is on the rise. Prime Minister Erna Solberg’s Conservative Party has been a long-time friend to the oil industry. Junior government coalition partner, the Liberals, were supportive even though they had backed a larger divestment.

Norway’s Labor Party, the biggest in opposition, also expressed support. “They are taking a more cautious step than what Norges Bank advised,” said Svein Roald Hansen, a Labor Party legislator. “But it’s better than no step at all. There seems to have been a tug of war within the government.”

The $1-trillion fund has been built up over the past two decades from oil and gas revenue and Norway also uses large chunks of income from its offshore fields each year to pay for its lavish welfare state. The managers of the fund, which is overseen by the central bank, therefore argued in their proposal that it makes little sense for Norway to be doubly exposed to oil both in its revenue stream and through its investments.